Shift Capital to Shift Power
- Essential Common Future
It’s been three years since Darren Walker confronted the origins of modern philanthropy in his well-known essay: “Toward a new gospel of wealth.”
In questioning the inherent tensions “between philanthropic efforts to address inequality and the structural economic realities that make it possible for foundations to exist at all,” Walker’s essay sent shock waves throughout the philanthropic sector. (It didn’t hurt that it came from the president of the Ford Foundation, which currently hosts the 10th largest endowment in the world.)
On the heels of this essay came Anand Giridharadas’, Winners Take All, and Edgar Villanueva’s, Decolonizing Wealth, both offering poignant reflections on the roots of power and privilege, as well as how wealth is created, spent, and grown.
These reflections may not be groundbreaking — least not to nonprofits and communities of color who have long struggled for access to capital — but they offered language around deep, systemic breaks in philanthropy, impact investing and policy structures that perpetuate wealth for the wealthy. These same discussions have started to take center stage at summits like the Skoll World Forum and SOCAP (Social Capital Markets) with record attendance; we may be at the tipping point of real change.
A core component of our work at BALLE is shifting capital to close the racial wealth gap and build equity for all marginalized communities with local leaders on the frontlines.
In this piece, we offer three reflections from our work with wealth-holders (i.e. foundations and impact investors) and wealth-builders (i.e. community leaders and social entrepreneurs) who are advancing models of an equitable economy. Think of this as our “Shift Capital 101.”
1. What do we mean by shifting capital and shifting power?
We’ve experienced major moments of reckoning around the economy, among them, the 2008 financial crisis, record income inequality, and the 2016 election. Why has little changed? While we’ve shifted our attention, we haven’t asked much of people in positions of power.
Many corporate charities seek to do more good, not to do less harm. Many philanthropists seek long-term, sustained economic growth in communities alongside exponential growth of their endowments. These goals are fundamentally in conflict; institutions that seek to “empower” individuals or communities cannot do so by keeping a firm grip on their own power.
In “Wealth Inequality and The Fallacies of Impact Investing,” BALLE’s Executive Director, Rodney Foxworth speaks to this tension in impact investing:
“Is it not perverse that Ivy League-educated white men from predominantly white male dominated institutions are able to accrue wealth by investing in African American women entrepreneurs — now that diversity is considered an asset, and the latest example of doing well by doing good — while the majority of African American women are excluded from building wealth through impact investment vehicles?”
To do good, institutions must give up more. Shifting capital is the mechanism by which we can transfer power, voice, and ownership to historically marginalized communities.
2. Who should be thinking about shifting capital, and how?
Foundations (place-based, community, health, and national), accredited impact investors, wealth-holders, policymakers, community financial institutions — anyone concerned about wealth inequality. How might these institutions shift capital? The list is long so we’ll consider a few strategies for private foundations, who we work with closely through our Foundation Circle.
Take foundation endowments: Rob Reich notes in his book, Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better, that foundation assets have grown from less than a billion dollars in 1930 to more than eight hundred billion dollars today. There are five hundred foundations today for each one that existed in 1930. Such staggering growth begs the question: where is this money invested?
As private foundations must pay out at least 5 percent of their assets each year in the form of grants and operating charitable activities, the other 95% of assets live somewhere in a fund.
(As an aside, the five percent need not be paid out in grants. It can also go to “operating charitable activities” like staff salaries and office space. What was initiated as a legally required floor is now an accepted business model for most foundations.)
Foundations might also consider who is making decisions around investments through their endowment. According to a Knight Foundation report, “Diversifying Investments,” the asset management industry is plagued by a lack of diversity.
Women and minority-owned firms have struggled to attract the business of philanthropy, family offices, and high-net worth individuals, hence why female minorities manage a mere 1% of all funding. Knight Foundation itself became aware of this problem and made an active choice, now investing $472 million or 23% of its total wealth with diverse managers, an increase from $7 million in 2010.
An arguably larger “shift” might result from allocating larger percentages of endowments towards annual spending. In 2017, Ford Foundation committed $1 billion from it’s endowment to mission-related investments over 10 years — the largest commitment from a private foundation. While this made national news, smaller foundations can play an equally significant role at the local level.
Through BALLE’s Foundation Circle, we worked with the Baltimore Community Foundation to develop and deploy a new $6 million racial equity investment strategy to support Baltimore-based businesses. This represented a 4% shift of the foundations $148 million endowment into impact investing.
These lessons aren’t limited to foundations. Shifting capital requires decision-makers to become active, attentive stewards of capital, to consider who is making the decisions, and to take a holistic approach to the definition of impact.
3. What’s possible (and realistic) right now?
Specifically in our work with foundations and impact investors, we acknowledge there is an uphill climb. For mission-driven investors, it can be difficult to identify a strong pipeline, especially without reliable models to predict risk and return in new locations, sectors, and populations. Moreover, most models that do exist don’t adequately weigh the social impact potential alongside the financial.
Although shifting power by shifting capital will require a systemic, multi-stakeholder, multi-year approach, it’s important, as a start, to simply build awareness. For foundations, that means knowing what you own; sitting down at a table with your grantmaking and investment committees to take a holistic look at your portfolio and reflect on the balance of investment externalities in the context of your mission.
This is a first step to determining whether a foundation’s investments support or detract from their goals, and whether or not they are shifting power to the communities they support.
In shifting capital, we aim to build equity for all marginalized communities — rural and Indigenous among them — while still heeding the stark reality of the racial wealth gap.
Shifting capital to shift power must take place across the funding spectrum, from place-based impact investing, to foundation grants, to seed funding for entrepreneurs of color. We share one common future — let’s embrace a shared capital strategy where equity is at the center.